-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LOM4WdF1YlgoxirdeJyuTXP1/gJctr6MISMLVQyjQ8GnS51WyGQtO8iCNIuP1Hzz f7V1P2L+Ow6116SuHFc0BA== 0000729237-00-000009.txt : 20000522 0000729237-00-000009.hdr.sgml : 20000522 ACCESSION NUMBER: 0000729237-00-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 DATE AS OF CHANGE: 20000519 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARKWAY PROPERTIES INC CENTRAL INDEX KEY: 0000729237 STANDARD INDUSTRIAL CLASSIFICATION: 6512 IRS NUMBER: 742123597 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11533 FILM NUMBER: 637084 BUSINESS ADDRESS: STREET 1: ONE JACKSON PL STREET 2: 188 E CAPITOL ST STE 1000 CITY: JACKSON STATE: MS ZIP: 39225-4647 BUSINESS PHONE: 6019484091 MAIL ADDRESS: STREET 1: ONE JACKSON PL P O BOX 24647 STREET 2: 188 E CAPITOL ST STE 1000 CITY: JACKSON STATE: MS ZIP: 39225 FORMER COMPANY: FORMER CONFORMED NAME: PARKWAY CO DATE OF NAME CHANGE: 19951018 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 --------------------------------- FORM 10-Q [x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarterly Period Ended March 31, 2000 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period from ________ to ________ Commission File Number 1-11533 Parkway Properties, Inc. - - ---------------------------------------------------------------- (Exact name of registrant as specified in its charter) Maryland 74-2123597 - - ------------------------------ --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) One Jackson Place Suite 1000 188 East Capitol Street P. O. Box 24647 Jackson, Mississippi 39225-4647 - - ----------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (601) 948-4091 -------------- - - ----------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ------- ------- 9,877,283 shares of Common Stock, $.001 par value, were outstanding as of May 12, 2000. PARKWAY PROPERTIES, INC. FORM 10-Q TABLE OF CONTENTS FOR THE QUARTER ENDED MARCH 31, 2000 - - ---------------------------------------------------------------- Pages ----- Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets, March 31, 2000 and December 31, 1999 3 Consolidated Statements of Income for the Three Months Ended March 31, 2000 and 1999 4 Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2000 and 1999 5 Consolidated Statements of Cash Flow for the Three Months Ended March 31, 2000 and 1999 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 17 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders 18 Item 6. Exhibits and Reports on Form 8-K 18 Signatures Authorized signatures 19 PARKWAY PROPERTIES, INC. CONSOLIDATED BALANCE SHEETS (In thousands except share and per share data) March 31 December 31 2000 1999 ------------ ----------- (Unaudited) Assets Real estate related investments: Office buildings.......................$631,854 $628,552 Office buildings held for sale......... 19,649 19,621 Office redevelopment................... 26,055 18,511 Accumulated depreciation...............(45,652) (41,319) -------- -------- 631,906 625,365 Land held for sale..................... 4,283 4,283 Real estate equity securities.......... 10,428 - Mortgage loans......................... 888 890 Real estate partnership................ 354 361 -------- -------- 647,859 630,899 Interest, rents receivable and other assets................................ 17,616 17,585 Cash and cash equivalents............... 136 885 -------- -------- $665,611 $649,369 ======== ======== Liabilities Notes payable to banks...................$114,720 $ 86,640 Mortgage notes payable without recourse.. 212,261 214,736 Accounts payable and other liabilities... 19,631 26,929 -------- -------- 346,612 328,305 -------- -------- Stockholders' Equity 8.75% Series A Preferred stock, $.001 par value, 2,750,000 shares authorized and 2,650,000 shares issued and outstanding in 2000 and 1999....................... 66,250 66,250 Common stock, $.001 par value, 67,250,000 shares authorized, 9,876,158 and 9,972,318 shares issued and outstanding in 2000 and 1999, respectively......... 10 10 Additional paid-in capital............... 216,983 220,526 Unearned compensation.................... (3,819) (4,923) Accumulated other comprehensive income... 432 - Retained earnings........................ 39,143 39,201 -------- -------- 318,999 321,064 -------- -------- $665,611 $649,369 ======== ======== See notes to consolidated financial statements. PARKWAY PROPERTIES, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) Three Months Ended March 31 --------------------- 2000 1999 -------- -------- (Unaudited) Revenues Income from office properties $29,355 $26,911 Interest on mortgage loans 24 15 Management company income 185 174 Interest on investments 7 21 Dividend income 302 - Deferred gains and other income 62 48 ------- ------- 29,935 27,169 ------- ------- Expenses Office properties: Operating expense 12,096 11,277 Interest expense: Contractual 3,955 3,743 Amortization of loan costs. 40 45 Depreciation and amortization 4,636 4,081 Other real estate properties: Operating expense 15 65 Interest expense on bank notes: Contractual 1,460 569 Amortization of loan costs 106 147 Management company expenses 136 139 General and administrative 1,161 832 ------- ------- 23,605 20,898 ------- ------- Income before gains and minority interest 6,330 6,271 Gain on sales and minority interest Gain on real estate held for sale and other assets - 86 Minority interest - unit holders (1) (1) ------- ------- Net income 6,329 6,356 Dividends on preferred stock 1,449 1,449 ------- ------- Net income available to common stockholders $ 4,880 $ 4,907 ======= ======= Net income per common share: Basic $ .49 $ .49 ======= ======= Diluted $ .49 $ .48 ======= ======= Dividends per common share: Basic $ .50 $ .45 ======= ======= Diluted $ .50 $ .45 ======= ======= Weighted average shares outstanding: Basic 9,884 10,103 ======= ======= Diluted 9,975 10,210 ======= ======= See notes to consolidated financial statements. PARKWAY PROPERTIES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands) Three Months Ended March 31 --------------------- 2000 1999 -------- -------- (Unaudited) 8.75% Series A Preferred stock, $.001 par value Balance at beginning of period...... $ 66,250 $ 66,250 -------- -------- Balance at end of period............ 66,250 66,250 -------- -------- Common stock, $.001 par value Balance at beginning of period...... 10 10 -------- -------- Balance at end of period............ 10 10 -------- -------- Additional paid-in capital Balance at beginning of period...... 220,526 223,834 Stock options exercised........... 18 68 Reclassification for issuance of restricted shares............... (844) - Purchase of Company stock......... (2,717) (739) -------- -------- Balance at end of period............ 216,983 223,163 -------- -------- Unearned compensation Balance at beginning of period...... (4,923) - Reclassification for issuance of restricted shares............... 844 - Amortization of unearned compensation.................... 260 - -------- -------- Balance at end of period............ (3,819) - -------- -------- Accumulated other comprehensive income Balance at beginning of period...... - - Change in unrealized gain on real estate equity securities... 432 - -------- -------- Balance at end of period............ 432 - -------- -------- Retained earnings Balance at beginning of period...... 39,201 37,857 Net income........................ 6,329 6,356 Preferred stock dividends declared (1,449) (1,449) Common stock dividends declared... (4,938) (4,540) -------- -------- Balance at end of period............ 39,143 38,224 -------- -------- Total stockholders' equity............ $318,999 $327,647 ======== ======== See notes to consolidated financial statements. PARKWAY PROPERTIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOW (In thousands) Three Months Ended March 31 ---------------------- 2000 1999 --------- --------- (Unaudited) Operating activities Net income........................... $ 6,329 $ 6,356 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization...... 4,636 4,081 Amortization of unearned compensation..................... 260 - Gain on real estate held for sale and other assets............ - (86) Equity in earnings and other....... (9) 7 Changes in operating assets and liabilities: Decrease in receivables........ 185 1,515 Decrease in accounts payable and accrued expenses......... (7,375) (4,241) -------- -------- Cash provided by operating activities 4,026 7,632 -------- -------- Investing activities Payments received on mortgage loans.. 1 1 Purchases of real estate related investments........................ - (2,631) Purchases of real estate equity securities......................... (9,996) - Proceeds from sale of real estate held for sale and other assets..... - 401 Real estate development.............. (7,544) (1,180) Improvements to real estate related investments........................ (3,834) (3,968) -------- -------- Cash used in investing activities.... (21,373) (7,377) -------- -------- Financing activities Principal payments on mortgage notes payable............................ (2,475) (2,195) Net proceeds from bank borrowings.... 28,080 6,373 Stock options exercised.............. 18 68 Dividends paid on common stock....... (4,859) (4,540) Dividends paid on preferred stock.... (1,449) (1,449) Purchase of Company stock............ (2,717) (739) -------- -------- Cash (used) provided by financing activities......................... 16,598 (2,482) -------- -------- Decrease in cash and cash equivalents (749) (2,227) Cash and cash equivalents at beginning of period................ 885 2,937 -------- -------- Cash and cash equivalents at end of period............................. $ 136 $ 710 ======== ======== See notes to consolidated financial statements. Parkway Properties, Inc. Notes to Consolidated Financial Statements (Unaudited) March 31, 2000 (1) Basis of Presentation The consolidated financial statements include the accounts of Parkway Properties, Inc. ("Parkway" or "the Company") and its 100% owned subsidiaries. All significant intercompany transactions and accounts have been eliminated. The accompanying financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. All such adjustments are of a normal recurring nature. The financial statements should be read in conjunction with the annual report and the notes thereto. (2) Reclassifications Certain reclassifications have been made in the 1999 consolidated financial statements to conform to the 2000 classifications. (3) Supplemental Cash Flow Information The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Three Months Ended March 31 ------------------------ 2000 1999 ----------- ----------- Cash paid for interest........ $6,017,000 $4,390,000 Mortgage assumed in purchase.. - 1,936,000 Income taxes paid............. 33,000 116,000 (4) Acquisitions and Dispositions For the quarter ended March 31, 2000, the Company purchased $9,996,000 in common equity of other Real Estate Investment Trusts. The real estate equity securities are classified as available-for-sale securities and are reported on the balance sheet at fair market value. A valuation allowance and corresponding unrealized gains on real estate equity securities in the amount of $432,000 was recorded as of March 31, 2000 in order to present the investments at fair market value. (5) Impact of Recently Issued Accounting Standards In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("FASB No. 133"). FASB No. 133 is effective January 1, 2001. FASB No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The Company has no derivative or hedging instruments outstanding as of March 31, 2000, therefore, management does not anticipate that the adoption of FASB No. 133 will have a significant effect on the Company's results of consolidated operations or its financial position. (6) Notes Payable to Banks The Company's lines of credit have certain financial covenants. As of March 31, 2000, the Company did not meet one of those covenants limiting the value of the unencumbered pool of assets to no more than 20% in any one approved market. The Company expects to obtain a waiver of the covenant to ensure compliance for the remainder of 2000. (7) Capital Transactions The Company has purchased 97,810 shares of its common stock during the quarter ending March 31, 2000, at an average price of $27.78. No purchases have been made subsequent to March 31, 2000. Since June 1998, the Company has purchased a total of 1,412,822 shares of its common stock, which represents approximately 12.8% of the common stock outstanding when the buyback program was initiated on June 30, 1998. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Financial Condition Comments are for the balance sheet dated March 31, 2000 compared to the balance sheet dated December 31, 1999. During the three months ending March 31, 2000, total assets increased $16,242,000 and office properties (before depreciation) increased $3,330,000 or .5%. Parkway's direct investment in office buildings and office redevelopment increased $6,541,000 net of depreciation to a carrying amount of $631,906,000 at March 31, 2000 and consisted of 51 operating properties and one redevelopment project in progress. During the three months ending March 31, 2000, the Company also capitalized building improvements and additional purchase expenses of $3,330,000 and recorded depreciation expense of $4,333,000 related to its office property portfolio. Office buildings held for sale of $19,649,000 as of March 31, 2000 consisted of three office properties in the Northern Virginia portfolio. The decision to put the Northern Virginia portfolio on the market for sale was based on management's belief that office properties in this market may be peaking in value. The Company has a signed contract for the sale of these properties for a price of $28,700,000. The closing is expected in the second quarter of 2000. The Company expects to reinvest approximately $15 million of the proceeds in office properties with the remaining proceeds used to reduce short-term debt. The Company is also considering selling properties in Birmingham, Alabama; South Carolina; Indianapolis, Indiana; Little Rock, Arkansas and a 50% interest in a property in New Orleans, Louisiana. The investment decisions will be based upon the Company's analysis of existing markets and competing investment opportunities. During the three months ending March 31, 2000, the Company incurred office redevelopment costs of $7,544,000. Costs incurred included capitalized interest costs of $408,000. The Company's redevelopment costs are associated with the redevelopment of the Moore Building, now known as Toyota Center, a 175,000 square foot, eight-story historic office building in downtown Memphis, Tennessee, and is scheduled to be completed by May 15, 2000. Rents from approximately 23% of the building commenced on April 1, 2000, and 52% commenced on May 1, 2000. Rent on the remaining 25% is expected to commence on June 1, 2000. The adjacent 777-space garage was completed April 1, 2000 with the majority of the pre-leased monthly parking fees commencing on that day. The building is owned by a partnership in which the Company is the general partner. The partnership added an institutional investor in March 2000 subject to the certification of historic tax credits pertaining to the building. The Company will have a subordinated note receivable from the partnership following the certification of the historical tax credits. The Company will also receive asset management fees and the building will be managed by Parkway Realty Services, a wholly- owned subsidiary of the Company. The partnership is scheduled to close a $15,000,000 non-recourse first mortgage note on the Toyota Center on May 18, 2000. The note will bear interest at an effective rate of 8.0%, amortize over a twenty-year term and mature ten years from the funding date. At March 31, 2000, non-core assets, other than mortgage loans, totaled $4,283,000. The Company expects to continue its efforts to liquidate these assets. For the quarter ended March 31, 2000, the Company purchased $9,996,000 in common equity of other Real Estate Investment Trusts. The real estate equity securities are classified as available-for-sale securities and are reported on the balance sheet at fair market value. A valuation allowance and corresponding unrealized gains on real estate equity securities in the amount of $432,000 was recorded as of March 31, 2000 to present the investments at fair market value. Notes payable to banks totaled $114,720,000 at March 31, 2000 and are the result of advances under bank lines of credit to purchase additional office properties, make improvements to office properties, fund redevelopment costs, purchase real estate equity securities and purchase Company stock. Mortgage notes payable without recourse decreased $2,475,000 during the three months ended March 31, 2000 due to scheduled principal payments. The Company expects to continue seeking fixed rate, non- recourse mortgage financing at terms ranging from ten to twenty years on select office building investments as additional capital is needed. The Company plans to maintain a ratio of debt to total market capitalization from 25% to 45% although such ratio may from time to time temporarily exceed 45%, especially when the Company has incurred significant amounts of short-term debt in connection with acquisitions. In addition, volatility in the price of the Company's common stock, which is out of the control of the Company, may result in a debt to total market capitalization exceeding 45% from time to time. In addition to the debt to total market capitalization ratio, the Company also monitors interest and fixed charge coverage ratios. Interest coverage ratios are computed by comparing the cash interest accrued to earnings before interest, taxes, depreciation and amortization. The interest coverage ratio for the three months ending March 31, 2000 and 1999 was 2.89 and 3.40 times, respectively. Fixed charge coverage ratios are computed by comparing the cash interest accrued, principal payments paid on mortgage loans and preferred dividends paid to earnings before interest, taxes, depreciation and amortization. The fixed charge overage ratio for the three months ending March 31, 2000 and 1999 was 1.73 and 1.85 times, respectively. Stockholders' equity decreased $2,065,000 during the three months ended March 31, 2000 as a result of the following factors (in thousands): Increase (Decrease) ------------------- Net income $ 6,329 Unrealized gains on real estate equity securities 432 ------- Comprehensive income 6,761 Shares purchased-Company common stock (2,717) Preferred stock dividends declared (1,449) Common stock dividends declared (4,938) Exercise of stock options 18 Amortization of unearned compensation 260 ------- $(2,065) ======= The Company has purchased 97,810 shares of its common stock during this quarter, at an average price of $27.78. No purchases have been made subsequent to March 31, 2000. Since June 1998, the Company has purchased a total of 1,412,822 shares of its common stock, which represents approximately 12.8% of the common stock outstanding when the buyback program was initiated on June 30, 1998. RESULTS OF OPERATIONS Comments are for the three months ended March 31, 2000 compared to the three months ended March 31, 1999. Net income available for common stockholders for the three months ended March 31, 2000 was $4,880,000 ($.49 per basic common share) as compared to $4,907,000 ($.49 per basic common share) for the three months ended March 31, 1999. Net income included net gains from the sale of the real estate and other assets in the amount of $86,000 for the three months ended March 31, 1999. The primary reason for the increase in the Company's income before gains for 2000 as compared to 1999 is the reflection of the operations of the following office buildings subsequent to the date of purchase: Building Purchase Date Sq. Feet ------------------------------- ------------- ---------- Moorefield I 01/12/99 46,000 Capitol Center 07/01/99 466,000 Operations of office building properties are summarized below (in thousands): Three Months Ended March 31 -------------------- 2000 1999 -------- -------- Income $29,355 $26,911 Operating expense (12,096) (11,277) -------- -------- 17,259 15,634 Interest expense (3,995) (3,788) Depreciation and amortization (4,636) (4,081) -------- -------- Net Income $ 8,628 $ 7,765 ======== ======== Net losses on operations of other real estate properties held for sale were $15,000 and $65,000 for the three months ending March 31, 2000 and 1999, respectively, and consisted primarily of property taxes on land held for sale. The $207,000 increase in interest expense on office properties is primarily due to the mortgage loans assumed and/or new loans placed in 1999. The average interest rate on mortgage notes payable as of March 31, 2000 and 1999 was 7.4%, respectively. The $850,000 increase in contractual interest expense on bank notes for the three months ending March 31, 2000 compared to the three months ending March 31, 1999 is primarily due to the increase in the average balance of borrowings outstanding under bank lines of credit from $40,937,000 during 1999 to $99,462,000 during 2000. In addition, weighted average interest rates under existing bank lines of credit increased from 6.3% for the three months ending March 31, 1999 to 7.4% for the three months ending March 31, 2000. General and administrative expenses were $1,161,000 and $832,000 for the three months ended March 31, 2000 and 1999, respectively. The primary reason for the $329,000 increase is due to the amortization of restricted stock shares approved by the shareholders at the June 3, 1999 annual meeting of $260,000. LIQUIDITY AND CAPITAL RESOURCES Statement of Cash Flows Cash and cash equivalents were $136,000 and $885,000 at March 31, 2000 and December 31, 1999, respectively. The Company generated $4,026,000 in cash flows from operating activities during the three months ending March 31, 2000 compared to $7,632,000 for the same period of 1999. The Company used $21,373,000 in investing activities during the three months ending March 31, 2000. In implementing its investment strategy, the Company used $9,996,000 to purchase real estate equity securities. The Company also spent $3,834,000 to make capital improvements at its office properties and $7,544,000 toward the Memphis real estate redevelopment project. Cash dividends of $6,308,000 ($.50 per common share and $.546875 per preferred share) were paid to stockholders, 97,810 shares of common stock were repurchased for a total of $2,717,000 and principal payments of $2,475,000 were made on mortgage notes payable during the three months ending March 31, 2000. Liquidity The Company plans to continue pursuing the purchase of additional investments that meet the Company's investment criteria and intends to use bank lines of credit, proceeds from the sale of non-core assets and office properties held for sale and cash balances to fund those acquisitions. At March 31, 2000, the Company had $114,720,000 outstanding under two bank lines of credit. The Company is exposed to interest rate changes primarily as a result of its lines of credit and long-term debt used to maintain liquidity and fund capital expenditures and expansion of the Company's real estate investment portfolio and operations. The Company's interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve its objectives, the Company borrows at fixed rates, but also has a three-year $150 million unsecured revolving credit facility with a consortium of 14 banks with Chase Bank of Texas, National Association serving as the lead agent (the "$150 million line") and a three-year $10 million unsecured line of credit with AmSouth Bank (the "$10 million line"). The interest rates on the lines of credit are equal to the 30 day LIBOR rate plus 112.5 to 137.5 basis points, depending upon overall Company leverage. The interest rate on the $10 million line and the $150 million line was 7.3% and 7.429%, respectively, at March 31, 2000. The $10 million line is unsecured and is expected to fund the daily cash requirements of the Company's treasury management system. This line of credit matures September 30, 2001 and has an interest rate equal to the 30 day LIBOR rate plus 112.5 to 137.5 basis points, depending upon overall Company leverage, with the current rate set at LIBOR plus 137.5 basis points. The Company paid a facility fee of 40 basis points ($40,000) upon closing of the loan and pays an annual administration fee of $3,000. The Company also pays fees on the unused portion of the line based upon overall Company leverage, with the current rate set at 25 basis points. The $150 million line is also unsecured and is expected to fund acquisitions of additional investments. This line of credit matures October 7, 2001 and has an interest rate equal to the LIBOR rate plus 112.5 to 137.5 basis points, depending upon overall Company leverage, with the current rate set at LIBOR plus 137.5 basis points. The Company paid a facility fee of $150,000 and originating fees of $432,500 (28.8 basis points) upon closing of the loan and pays an annual administration fee of $37,500. The Company also pays unused fees on the unused portion of the line based upon overall Company leverage, with the current rate set at 25 basis points. At March 31, 2000, the Company had $212,261,000 of non- recourse fixed rate mortgage notes payable with an average interest rate of 7.40% secured by office properties and $114,720,000 drawn under bank lines of credit. Based on the Company's total market capitalization of approximately $683,999,000 at March 31, 2000 (using the March 31, 2000 closing price of $29.4375 per common share), the Company's debt represented approximately 47.8% of its total market capitalization. The Company plans to maintain a ratio of debt to total market capitalization from 25% to 45% although such ratio may from time to time temporarily exceed 45%, especially when the Company has incurred significant amounts of short-term debt in connection with acquisitions. In addition, volatility in the price of the Company's common stock, which is out of the control of the Company, may result in a debt to market capitalization exceeding 45% from time to time. In addition to the debt to total market capitalization ratio, the Company also monitors interest and fixed charge coverage ratios. Interest coverage ratios are computed by comparing the cash interest accrued to earnings before interest, taxes, depreciation and amortization. The interest coverage ratio for the three months ending March 31, 2000 and 1999 was 2.89 and 3.40 times, respectively. Fixed charge coverage ratios are computed by comparing the cash interest accrued, principal payments paid on mortgage loans and preferred dividends paid to earnings before interest, taxes, depreciation and amortization. The fixed charge coverage ratio for the three months ending March 31, 2000 and 1999 was 1.73 and 1.85 times, respectively. The table below presents the principal payments due and weighted average interest rates for the fixed rate debt. Average Fixed Rate Debt Interest Rate (In thousands) ------------- --------------- 2000* 7.40% $ 7,704 2001 7.40% 10,961 2002 7.40% 11,803 2003 7.39% 14,374 2004 7.39% 13,619 2005 7.38% 14,666 Thereafter 7.59% 139,134 -------- Total $212,261 ======== Fair value at 3/31/00 $206,123 ======== *Remaining nine months The Company presently has plans to make capital improvements at its office properties in 2000 of approximately $20,619,000. These expenses include tenant improvements, capitalized acquisition costs and capitalized building improvements. Approximately $4,070,000 of these improvements relate to upgrades on properties acquired in recent years that were anticipated at the time of purchase. All such improvements are expected to be financed by cash flow from the properties and advances on the bank lines of credit. The Company anticipates that its current cash balance, operating cash flows, proceeds from the sale of office properties held for sale and borrowings (including borrowings under the working capital line of credit) will be adequate to pay the Company's (i) operating and administrative expenses, (ii) debt service obligations, (iii) distributions to shareholders, (iv) capital improvements, and (v) normal repair and maintenance expenses at its properties both in the short and long term. The Company's lines of credit have certain financial covenants. As of March 31, 2000, the Company did not meet one of those covenants limiting the value of the unencumbered pool of assets to no more than 20% in any one approved market. The Company expects to obtain a waiver of the covenant to ensure compliance for the remainder of 2000. Funds From Operations Management believes that funds from operations ("FFO") is an appropriate measure of performance for equity REITs. Funds from operations is defined by the National Association of Real Estate Investment Trusts (NAREIT) as net income or loss, excluding gains or losses from debt restructuring and sales of properties, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. In March 1995, NAREIT issued a clarification of the definition of FFO. The clarification provides that amortization of deferred financing costs and depreciation of non-real estate assets are not to be added back to net income to arrive at FFO. In addition, effective January 1, 2000, NAREIT has clarified that FFO should include both recurring and non-recurring operating results except those defined as extraordinary items under generally accepted accounting principles and gains or losses from sales of depreciable operating property. The Company's calculation of FFO shown below is consistent with NAREIT's recent clarification and includes an adjustment of $86,000 for the three months ending March 31, 1999 to include gains on sales of real estate held for sale during that quarter. Funds from operations does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not an indication of cash available to fund cash needs. Funds from operations should not be considered an alternative to net income as an indicator of the Company's operating performance or as an alternative to cash flow as a measure of liquidity. The following table presents the Company's FFO for the three months ended March 31, 2000 and 1999 (in thousands): Three Months Ended March 31 -------------------- 2000 1999 --------- --------- Net income $ 6,329 $ 6,356 Adjustments to derive funds from operations: Preferred dividends (1,449) (1,449) Depreciation and amortization 4,636 4,081 Equity in earnings (13) (12) Distributions from unconsolidated subsidiaries 20 19 Amortization of discounts, deferred gains and other (16) - ------- ------- Funds from Operations $ 9,507 $ 8,995 ======= ======= NAREIT has recommended supplemental disclosure concerning capital expenditures, leasing costs and straight-line rents which are given below (in thousands): Three Months Ended March 31 ------------------ 2000 1999 ------- ------- Straight-line rents $ 365 $ 365 Building improvements 604 349 Tenant improvement New leases 1,183 451 Lease renewals 1,034 690 Leasing commissions: New leases 276 175 Lease renewals 228 210 Leasing commissions amortized 287 213 Upgrades on recent acquisitions 509 2,093 Inflation In the last five years, inflation has not had a significant impact on the Company because of the relatively low inflation rate in the Company's geographic areas of operation. Most of the leases require the tenants to pay their pro rata share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing the Company's exposure to increases in operating expenses resulting from inflation. In addition, the Company's leases typically have three to five-year terms, which may enable the Company to replace existing leases with new leases at a higher base rent if rents on the existing leases are below the then-existing market rate. Forward-Looking Statements In addition to historical information, certain sections of this Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, such as those that are not in the present or past tense, that discuss the Company's beliefs, expectations or intentions or those pertaining to the Company's capital resources, profitability and portfolio performance and estimates of market rental rates. Forward- looking statements involve numerous risks and uncertainties. The following factors, among others discussed herein and in the Company's filings under the Securities Exchange Act of 1934, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: defaults or non-renewal of leases, increased interest rates and operating costs, failure to obtain necessary outside financing, difficulties in identifying properties to acquire and in effecting acquisitions, failure to qualify as a real estate investment trust under the Internal Revenue Code of 1986, as amended, environmental uncertainties, risks related to natural disasters, financial market fluctuations, changes in real estate and zoning laws and increases in real property tax rates. The success of the Company also depends upon the trends of the economy, including interest rates, income tax laws, governmental regulation, legislation, population changes and those risk factors discussed elsewhere in this Form 10-Q and in the Company's filings under the Securities Exchange Act of 1934. Readers are cautioned not to place undue reliance on forward- looking statements, which reflect management's analysis only as the date hereof. The Company assumes no obligation to update forward-looking statements. Item 3. Quantitative and Qualitative Disclosures About Market Risk. See information appearing under the caption "Liquidity" in Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations. PARKWAY PROPERTIES, INC. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders On May 10, 2000, the Company held its Annual Meeting of Stockholders. At the Annual Meeting, the following nine directors were elected to serve until the next Annual Meeting. Vote Vote For Withheld --------- --------- Daniel C. Arnold 8,277,844 67,369 Roger P. Friou 8,307,456 37,757 Martin L. Garcia 8,308,840 36,373 Michael J. Lipsey 8,308,440 36,773 Joe F. Lynch 8,307,932 37,281 C. Herbert Magruder 8,307,892 37,321 W. Lincoln Mossop, Jr. 8,308,242 36,971 Steven G. Rogers 8,309,568 35,645 Leland R. Speed 8,307,888 37,325 Item 6. Exhibits and Reports on Form 8-K (a) (27) - Financial Data Schedule attached hereto. (b) Reports on Form 8-K (1) 8-K Filed - None SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATED: May 15, 2000 PARKWAY PROPERTIES, INC. /s/ Regina P. Shows Regina P. Shows, CPA Chief Accounting Officer EX-27 2
5 1,000 3-MOS DEC-31-2000 MAR-31-2000 136 10,428 17,616 0 0 28,180 677,558 45,652 665,611 134,351 212,261 0 66,250 10 252,739 665,611 29,540 29,935 0 12,247 11,358 0 5,561 6,329 0 6,329 0 0 0 6,329 .49 .49
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